The Australian sharemarket slumped to another loss on Tuesday, as concerns over the US-China trade war and rising bond yields affected healthcare and technology stocks.
The S&P/ASX 200 index fell 59.2 points, or 1 per cent, to 6041.1 while the broader All Ordinaries closed 63.1 points lower at 6155.5.
“The sudden rise in yields has called into question valuations as the discount rate rises, this acts like gravity on growth stocks,” said Saxo Capital Markets Australia market strategist Eleanor Creagh.
“The high growth cohort of stocks are hit the hardest as the lofty valuations arise from the prospect of high future earnings. The market is selling off the high P/E growth leaders like healthcare and tech based on this fact.”
CSL fell 4.5 per cent to $188.21, hitting a four-month low and weighing the index. Fellow healthcare giant Cochlear closed 5.2 per cent lower at $191.88, ResMed fell 2.3 per cent to $15.12, Sonic Healthcare lost 1.9 per cent to $24.68 and Ramsay Healthcare closed at $54.17, down 2.8 per cent.
Australian information technology stocks fell on Tuesday, following a poor performance among US tech stocks, which fell 1.2 per cent on Monday. The tech-heavy NASDAQ Composite index fell to a two-month low on Monday after recording its third straight loss.
Locally, Appen was among the index’s worst performers on Tuesday, falling 5.3 per cent to $12.50, Afterpay Touch closed 4.5 per cent lower at $15.97, Xero went down 4.9 per cent to $46.43 and Wisetech Global closed at $18.60, down 5.4 per cent.
Chinese consumer focused stocks also traded lower on Tuesday over concerns that China’s economic growth could weaken on the back of a trade war. A2 Milk fell 3.1 per cent to $9.31, Treasury Wine closed 2.1 per cent lower at $17.00 and Bellamy’s Australia went down 6.3 per cent to $8.40.
It closed the session 0.9 points lower at $68.75. It was the weakest of the four major banks, which also closed lower on Tuesday. NAB fell 1 per cent to $26.61, Westpac went down 0.6 per cent to $26.97 and ANZ closed at $26.83, down 0.6 per cent.
Local mining stocks also weakened, as the price of gold tumbled 1.3 per cent per cent on the back of a stronger US dollar and higher US bond yields. Newcrest Mining fell 0.8 per cent to $19.45 and Saracen Mineral closed 2.5 per cent lower at $1.96. Resolute Mining fell to its lowest level this year, closing at $1.00, down 5.7 per cent.
NEXTDC was the index’s best performer despite lifting only 2.6 per cent to $6.29. On Monday, the company announced it would buy out the remaining 70.8 per cent interest in landlord Asia Pacific Data Centre Group.
Brokers retained their recommendations on ANZ despite the company announcing it would take an $824 million hit to its annual earnings. Goldman Sachs, Credit Suisse, JP Morgan, Macquarie and Shaw and Partners all retained their outperform/buy recommendations, while Morningstar retained its hold recommendation. In its note, Macquarie downgraded ANZ’s FY18 EPS forecast by 7 per cent, leading to a $260 million impact on capital. It retained its outperform recommendation on the expectation that ANZ will deliver superior EPS growth compare to its peers in FY19-20, supported by a buy-back due to its sector-leading capital position. Macquarie did note that ANZ’s reduced scope to generate franking credits would likely reduce its scope to increase dividends in FY19. It downgraded its price target on the bank from $30.50 to $30.00.
What moved the market
Business confidence lifted during September, according to the latest NAB Monthly Business Survey. The business confidence index edged to 6 index points, up one point from five in August, and is now sitting back around average. Confidence remains particularly high in the mining sector, while the wholesale industry continues to weigh the index. Across the country, South Australia has the most business confidence of the states, followed by Western Australia and Queensland. New South Wales is lagging in business confidence despite business conditions in the state being quite favourable.
The price of aluminium fell in London on Monday after alumina refinery Alunorte resumed production in Brazil, just days after it announced it would shut down indefinitely. The refinery’s owner Norsk Hydro ASA announced that local authorities had given the company permission to use new technology to manage its bauxite waste, allowing it to resume production at 50 per cent capacity. This moved reversed concerns of supply tightening for refined alumina, pushing the price of aluminium lower. It fell 3 per cent on the London Metal Exchange on Monday, with the fall likely also exacerbated by the rising US dollar.
The euro faced more pressure on Monday as concerns mounted as to whether Italy and the European Commission (EC) would reach an agreement over Italy’s 2019 budget proposal. Italy’s Deputy Prime Minister Matteo Salvini attacked the EC and its leading, accusing them of putting Italy into debt and impoverishing the nation due to austerity measures. The EC has warned Italy that its fiscal plan is a significant breach of EU rules but is expected to give a more formal opinion on the country’s budget before October 15. The euro fell by as much as 0.5 per cent against the US dollar on Monday before recovering slightly later in the session.
The Japanese yen was the top performing major currency on Monday night, as worsening US-China diplomatic tensions push investors toward the “safe haven” currency, lifting it away from recent lows. Concerns over Italy’s fiscal plan and deteriorating relationship with the European Union also pushed investors towards the yen, which jumped close to 1 per cent. It was a welcome rebound for the yen which was trading at a near seven-month low during the middle of last week. Japan’s large current account surplus means the yen is in high demand during times of heightened risk aversion.